BHEL a good quality stock

CNBC-TV18’s Executive Editor, Udayan Mukherjee –

Somebody sold BHEL yesterday, offloaded large chunk of stock. Lot of reasons followed but I don’t think the reasons led the fall down, it was just demand supply mismatch. A lot of stock suddenly came into the market, may be one institutional player sold out, we keep hearing names but we don’t know, so we won’t say. But there have been 3-4 downgrades in BHEL over the last 1-1.5 months from influential brokerages and price target cuts.

I think people are a bit concerned about what happened in Q3, results were not good for BHEL and they are concerned that when they will come out with their provisional numbers later this week, there might be some what’s on the margin fronts because firstly of the raw material pressures and secondly metal prices have gone up significantly, and pay commission salary hikes. Legitimate fears too may be that margins will not be same as BHEL as they have enjoyed over the last couple of years and for which the stock is getting a mild derating. It’s not a cheap stock. It has fallen from Rs 2,900 to Rs 1,900 but even so it’s trading at Rs 22 times next years earnings and it is not the cheapest stock in the market, which is trading at 15 times. So I think it can lose another 10-15% if somebody is standing there to sell large blocks of stock without looking ridiculously cheaper but it’s a good quality stock probably there are concerns out there.
Axis Bank has corrected 45% from its peak Rs 1,300 to Rs 720, trades now at only 2.7 times book that’s a big come off from 4.5 times book it was trading at. Can it fall to 2.5 times book? That is another 10% which is quite possible in this kind of a market. But around that benchmark levels of 2.5 times price to book, you ought to be looking at some of these good quality private sector banks like Axis and HDFC Bank. So some people would be sniffing an opportunity out there, if the stock plunges below Rs 700, which is entirely possible in this kind of a market. But it is good to keep in perspective that valuations have adjusted quite significantly in Axis Bank.

Bulls unable to defend upmoves We had an apology of a rally today. After all the excitement of the morning when we walked in with nearly a 400-point Dow rally under our belt with most Asian markets leaping 3-4%, the way we closed today is so disappointing.

We started of course in grand fashion like the rest of Asia, leaping 600 points straightaway. The Nifty went up above 4900 in opening trade. It looked like we may be able to hold on to our gains as short covering kicked in later in the day, but it was not to be. It just tells you, how deep the lack of conviction in the market right now is. It doesn’t matter if we get good tailwinds from global markets, upmoves are just not lasting. People take profits at the smallest of gains, shorts get opened up at higher levels and the bulls are not able to defend any of these upmoves. So, it was a very disappointing end of the session today. For a session that started with a bang, it really ended with a bit of a whimper.

The Sensex finally closing around 15,700 barely 100 points up. The Nifty was almost flat, after starting the day nearly 200 points up. So, it went above 4900, just about managed to close around that 4750 mark.

The breadth was okay about 900 to 300, no complains there. But the midcap index could not strike out anything by way of gains. It was just about flat. Volumes were pathetic. Yesterday was Rs 44,000 crore; today it is about Rs 43,000 crore. Trade has really dipped in the last few sessions. On volatile days, on strong days, it doesn’t matter. Volumes are just completely absent.
A few stocks that stood out in weakness and might have dragged the market down were some of those metals once again, Tisco, SAIL, continuing to be under pressure with fears of government interference in pricing. BHEL had another very ordinary day out there. Reliance Energy did not look very strong today. Some of the FMCG heavyweights, Hindustan Unilever and ITC took the day off and Cairn wasn’t particularly strong, offset in part by some strength in stocks like ICICI, HDFC. A few of the technology stocks did not look too bad and neither did stocks like Hero Honda or Suzlon.

On the midcaps, we had a listing today from Indiabulls Securities. It did not list well at all and finally closed the day below the Rs 100 mark having started the day closer to the Rs 140-150 level. It is quite disappointing the way Indiabulls Securities listed. I think people would have expected more.

There were a few howlers like GSS America, which collapsed 20% after all the run-ups of the last couple of days. A few infrastructure stocks did not look too bad today, whether it is Lanco or JP Associates or GMR or Punj Lloyd, they managed to strike out some modest gains. A few financial stocks like Indiabulls Finance and Reliance Capital did okay and a few sparklers like HOEC (Hindustan Oil Exploration), the oddHDIL or India Cement. But otherwise, it was a forgettable session completely for the market. It has been more disappointing than encouraging despite the 100-point gain that you see on the Sensex.